automatic stabilizers

Syllable breakdown

Dictionary meaning

features of government taxation and expenditure that automatically dampen economic fluctuations without requiring discretionary policy changes, by increasing government spending and reducing tax revenues during downturns and doing the opposite during expansions; examples include unemployment insurance (payments rise automatically as unemployment rises), progressive income taxes (revenue falls automatically as incomes decline), and means-tested welfare programmes; automatic stabilizers reduce the volatility of the business cycle by sustaining aggregate demand during recessions and moderating demand during booms; they are distinguished from discretionary fiscal policy, which requires legislative action and may be subject to implementation lags that reduce its counter-cyclical effectiveness